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Continue reading for this week’s Energy Insights update.
Here’s this week’s update:
- This week, the Midwest and Northeast will be experiencing frigid winter weather, with many areas seeing temperatures dip into the single digits. Northeast spot gas and power prices have seen spikes, with Transco, NY reaching $15/MMBtu and Algonquin gas exceeding $12/MMBtu. Power followed suit, with dailies above $100/MWh in both regions.
- Futures prices have also risen strongly since the lows seen on January 9. February natural gas futures broke key support at $3.50 and finished the week at $3.57 — up 24 cents for the week and up 46 cents since January 9. Calendar ’14 was up 13 cents last week to $4.13 and Calendar ’15 was up 8 cents last week to $4.31.
- Storage withdrawals have been larger than expected due to cold weather, as well as production declines, resulting in a tighter supply-demand balance. Last week the EIA reported a withdrawal of 148 Bcf, which was much smaller than the previous week due to milder temps, but still above expectations for the third consecutive week. Current inventory through Jan. 11 is 3,168 Bcf, a deficit of 147 Bcf versus 2012 but a surplus of 316 (or 11.1%) versus the 5-year average.
- One key metric that traders are keeping an eye on is the estimate of natural storage levels at the end of March (i.e. the end of withdrawal season). Last year we finished the withdrawal season at 2.437 Bcf — a record high — while the 5-year average is 1,710 Bcf. Based on forecasts for cold temperatures for the remainder of January, and assuming we experience a “normal” February and March, inventories could finish below 1,950 Bcf. This estimate has been significantly revised (downward) over recent weeks, which has clearly contributed to the price rally.
- Both total gas and horizontal rig counts have stabilized since November, as prices are higher than last spring. But in both cases, drilling activity is down. New data does suggest that production has fallen by more than 2 Bcf per day since the peak in November 2012.
CPUC establishes lottery process for any additional DA load
In late December, the California Public Utility Commission (CPUC) issued a decision adopting the process improvements for administering the enrollments for Direct Access (DA) rights. In this decision, the Commission changed the process from a 9:00 a.m. email submission process to more of a “lottery” process, which will begin this April, and will continue each June thereafter.